Opting for a low home loan interest rate regime should be your top priority and in this article, we explain why. To start with, you will save money on interest if you choose a lower home loan interest rate programme. Moreover, you may also be able to pay off your loan sooner than you think if your monthly EMIs are on the lower and affordable side. As a result, before selecting a house loan, you should chat with a few lenders and compare interest rates from different institutions.
Several factors, including your current wage and income, decide the amount of loan you are qualified for.
Owing to the Coronavirus outbreak, Indian banks have decided to now lower house loan interest rates to a 15-year low to increase consumer confidence at a time when the economy is suffering and property purchasers are wary of job security issues.
Current Market
The current period of low home loan interest rates, particularly among banks that have benchmarked their loans to the RBI’s repo rate, provides an opportunity for borrowers servicing home loans under the MCLR or base lending rate regimes (i.e. for loans taken before October 2019) to refinance their loans to repo-linked loans to take advantage of the lower rates and save money on interest.
For loans up to 75 lakh, SBI has slashed rates to 6.7 per cent and other banks are following suit. For women borrowers, SBI offers an additional 5 basis point discount. Bajaj Housing Finance is offering home loans starting at a 6.75%* interest rate. In addition, if you are still paying a very high interest rate on your home loan and are suffering financially due to it, you can also opt for a home loan balance transfer with us and enjoy lower interest rates.
Fixed-Rate vs Floating Rate
Home loans are typically offered by banks at variable rates, which fluctuate based on external benchmarks. As an external benchmark, most banks use the repo rate of the Reserve Bank of India. Another advantage of floating rates is that there is no penalty for paying early.
Some lenders, on the other hand, provide house loans with a fixed rate, which means the interest rate does not fluctuate with market conditions. Another advantage of a fixed loan is its consistency: you can plan your repayments for the duration of the loan because the monthly amount will remain the same. This sort of house loan, however, comes with a somewhat higher interest rate. When the interest rate is low, it’s a good idea to take out this form of home loan.
Interest on a Home Loan Can Be Calculated in Two Ways
- Flat Rate: Interest is calculated on the whole loan amount initially borrowed over the entire loan term using the flat rate technique of interest calculation.
- Balance Reduction Method: Parts of the loan amount and the interest component are paid off as you pay off your monthly EMIs. Interest is calculated on the decreasing loan amount rather than the total amount borrowed in this technique.
Here’s Why You Must Try to Get the Lowest Home Loan Interest Rate Possible
- Saves you a significant amount of money: If you’ve been a loyal customer of a specific bank for a long time, the bank may be willing to offer you a loan with a reduced interest rate. As a result, performing some preliminary research never goes to waste as a lower interest rate will enable you to save a significant amount of money on a home loan.
- Lower EMIs: A lower interest rate equals cheaper EMIs and reduced interest payment throughout the loan. The EMI, or equated monthly instalments, is computed using three important parameters: the loan amount, the interest rate, and the loan term. To calculate your home loan EMI, you’ll need all three pieces of information. So, if you take a home loan of Rs. 20 lakh for a 5-year term at 10% interest, your EMI will be Rs. 42,494. On the other hand, if the same 5-year loan is taken at an 8.50% interest rate, your home loan EMI will be Rs. 41,033. You can also utilize our home loan EMI calculator available online to understand how interest rate affects EMIs and the total interest paid.
Before applying for a home loan, it is also crucial you check your eligibility concerning the criteria set by your preferred lender. To apply for a home loan, one must meet the following eligibility conditions, which may vary from bank to bank:
- The applicant must be between 18 and 70 years of age (age restrictions may vary per bank).
- He or she must be a permanent resident of India.
- A home loan can be obtained by both salaried and non-salaried individuals.
- Salaried people must be over the age of 21 when the loan is started and under the age of 60 or superannuation when the loan is paid off, whichever comes first.
- Non-salaried professionals must be at least 21 years old when the loan is started and no more than 65 years old when the loan is paid off.
